Memo to self. 'PRIORITY: Time to shield savings and investments from the tentacles of the Labour government – and consider sale of second home and buy-to-let property.'

It's a memo that you should pin on your fridge door if you have been able – and fortunate enough – to accumulate your own mini wealth fund to provide financial security in later life.

Irrespective of the composition of your wealth portfolio – be it shares, a buy-to-let property, a second home or a holiday-let – Labour, greedy Labour, is after a chunky slice of it when you come to dispose of any of these assets.

Only tax-friendly assets such as your pension and Individual Savings Accounts (Isas) are relatively safe from Labour's grasping hands (note the use of the word 'relatively').

Alarmist? No. Melodramatic? No. Labour is about to come after your wealth like no government in recent times – as sure as night follows day and Keely Hodgkinson's certainty of gold in last Tuesday's thrilling 800 metres Olympic final in Paris.

After cruelly taking the winter fuel payment away from millions of pensioners and axing the protective social care cap for those requiring long-term care, Chancellor of the Exchequer Rachel Reeves has given a whopping hint of what she is about to unleash next. A spectacular capital gains tax (CGT) raid on Middle England.

Speaking in Canada, where she was busy finding out more about how the assets of mighty pension funds can be used to fuel a boom in crucial infrastructure projects, she refused to rule out an increase in the tax charged on capital gains.

Asked specifically about CGT, she did a side-step that former Rugby Union legend Barry John would have been proud of.

'It is always important when you're deciding tax policy to strike the right balance.' Side step par excellence. Code for a hike in CGT tax rates, to be announced in Reeves' debut Budget on October 30.

Capital gains tax is currently charged on the sale of various assets – including investments, businesses, properties that are not your main home and big ticket personal possessions such as jewellery and paintings. The rate you pay depends on your taxable income and the type of asset sold.

For sales of shares, unit trusts and personal possessions, basic-rate taxpayers typically pay 10 per cent (sometimes more) while higher-rate and additional-rate taxpayers pay 20 per cent.

For second-home sales, the respective tax rates are 18 and 24 per cent with the latter cut from 28 per cent by former Chancellor Jeremy Hunt in his March Budget this year.

The only concession is that crystallised gains of up to £3,000 per tax year can be shielded from the tax.

The former Conservative Government chipped away at the annual CGT shield, reducing it from a juicy £12,300 in the tax year ending April 5, 2023 to the current £3,000. Reeves may well chip away even more, but what is more likely is a pushing up of the CGT tax rates in line with income taxes which would be 20, 40 and 45 per cent.

When the Chancellor could strike

The change could happen as early as Budget Day (October 30). Louise Wickens, private client tax director at accountants James Cowper Kreston, says: 'As CGT is a transaction tax, a change midway through a tax year is possible. So, any increases could apply soon after October 30.'

Ideologically, higher CGT rates would tick all of Labour's boxes – and Reeves could justify her move by pointing to analysis done in late 2020 by the now disbanded Office of Tax Simplification. 

A report it compiled concluded that the 'disparity' in rates between CGT and income tax 'can distort business and family-decision making and creates an incentive for taxpayers to arrange their affairs in ways that recharacterise income as capital gains'.

Not everyone agrees. The National Institute of Economic and Social Research, a think tank, says removal of the 'disparity' would be a 'mistake', discouraging private investment.

David Denton, technical consultant at financial adviser Quilter Cheviot, agrees. He told Wealth: 'There is a perception that CGT only impacts the wealthy and as a result increasing the tax rates may do little to diminish Labour's popularity.

'But a significant amount of the tax paid comes from the sale of businesses by successful entrepreneurs – and given the Government's focus on economic growth, any CGT hike could discourage such risk-taking.'

Valid counter arguments, of course. But as Matthew Spencer, tax partner at law firm Kingsley Napley, says: 'An increase in CGT now feels like an inevitability.'

How increases in CGT rates could hit you 

So, as speculation mounts that the Chancellor is planning a CGT raid on October 30, Wealth asked tax expert Chris Shepard to get out his calculator and do some number crunching.

Wealth presented Shepard, a partner in private tax client services at wealth manager Evelyn Partners, with two scenarios.

First, someone crystallising £10,000 of investment gains and then somebody else making £30,000 of profits from the sale of a second property.

For a basic, higher and additional rate taxpayer, Shepard calculated the CGT tax charges that would be levied now – and then the charges if CGT tax rates were aligned with income taxes.

He has done the sums on the basis that the annual capital gains tax allowance is kept at £3,000.

As is the way with tax, Shepard has had to make other assumptions to arrive at the figures. The key one is that for the three categories of taxpayer, he has assumed the whole gain is charged at one rate of CGT when often slices are charged at different rates.

Shepard has also used the income tax rates that apply in England and Northern Ireland – different rates apply in Scotland.

The results are in the table opposite and confirm rather galling increases in CGT tax bills, both in absolute and percentage terms.

As expected, it is higher and additional rate taxpayers that face the biggest hikes.

For example, a 40 per cent taxpayer banking £10,000 of share profits will see their CGT bill double to £2,800 while an additional rate taxpayer will face a tax charge 125 per cent higher – £3,150 as opposed to £1,400 now.

For a higher rate taxpayer crystallising a £30,000 gain from the sale of a second property, their CGT bill would jump from £6,480 to £10,800.

If these higher CGT rates were accompanied by another cut in the CGT allowance, the tax takes would be even larger.

A £1,000 annual allowance would result in the higher rate taxpayer paying CGT of £11,600 on the £30,000 property gain.

Yes, analysis based on ifs and buts, but an indication of what is heading our way.

What action you can take to mitigate tax

Investors can minimise CGT bills by holding as much of their investments as possible inside Isas where profits can be taken tax-free.

So, take advantage of your current £20,000 Isa allowance as much as you can afford to – don't allow it to go unused.

And look to transfer existing shares into an Isa. This can be done through 'bed and Isa' – where shares are sold and then bought back straightaway inside the Isa. The amount that goes into the Isa counts towards your annual allowance.

Investing platforms provide this service although they will charge. Stamp duty of 0.5 per cent is also payable on the repurchase – fund repurchases are exempt. Investors also should be aware that the 'bedding' (selling) may incur a CGT charge if the gain exceeds the £3,000 nil-rate allowance. Another sensible tactic is to transfer investments to a spouse or civil partner if they are on a lower income tax rate.

Shares disposed of by a spouse who is a higher rate taxpayer will potentially attract a bigger CGT bill than a partner who is a basic rate taxpayer.

Resultingly, it makes perfect sense for the spouse who pays a lower rate of tax to own more of the family investments.

Such interspousal transfers are tax-free and apply to any financial asset – not just shares.

Any shareholdings held outside of an Isa – and standing at a loss – should be left alone. They are better crystallised when Labour increases CGT rates, offsetting gains made elsewhere and reducing the size of any tax bill.

For owners of second homes or buy-to-lets who had already been thinking about disposing of a property before Labour arrived on the scene, it might well pay them to push through a sale as soon as possible.

But contented second property owners should do nothing, according to Quilter Cheviot's Denton. He says: 'Unless selling a second home is already part of your plan, making decisions based on what might happen to CGT is not sensible.'

This argument, he adds, equally applies to the realisation of gains from investments or the sale of a business.

And maybe it could be even worse

As we have already found out, this Chancellor is capable of pulling rabbits out of her hat under the cloak of acting in the best interests of the country. Think winter fuel payment, think social care cap.

So, on CGT, Evelyn's Shepard says she could (not will) scrap the current exemption for gains on investments held by someone when they die.

Such assets currently fall under the friendlier inheritance tax regime.

He also says Reeves could drag more investors into CGT by reducing the annual Isa allowance – or bringing in some kind of 'lifetime' Isa limit with sums above the cap subject to tax.

Neither of these measures, he argues, would be massive revenue-raisers, so are unlikely.

On the possibility of CGT being slapped on the sale of our main homes, Shepard says Sir Keir Starmer ruled this out in the general election campaign.

But as the tax expert warns, Reeves' recent comments on the apparent poor health of the public finances rule little out – beyond her commitment not to raise current rates of income tax, National Insurance contributions and VAT. God forbid.

PS: Don't forget the memo – and be sure to act on it.